Opinion
C.A. NO. 98-6768.
October 21, 2004
MEMORANDUM OPINION AND ORDER
Introduction.
Presently before the court is the motion of defendant, Pension Benefit Guaranty Corporation ("PBGC") to dismiss the Third Amended Complaint ("TAC") filed by William H. Burstein, M.D. and other named plaintiffs, individually and on behalf of a class they seek to represent. Also before the court is defendant Dwight Kasperbauer's motion to dismiss the claims against him. Finally, the representative plaintiffs have renewed their motion for class certification. For the following reasons, the motion of the PBGC will be granted. The motion of Kasperbauer will be denied. And the motion for class certification will be denied.
Background.
The pertinent facts and procedural history of the current action are well known to the parties and will be repeated here only insofar as necessary for us to explain our decision. See Burstein v. Retirement Plan, Allegheny Health, 334 F.3d 365, 369-71 (3rd Cir. 2003) (reciting relevant facts, party relationships, and events leading to current proceeding). In remanding this action, the Third Circuit authorized the plaintiff class to file a TAC, alleging causes of action against defendants PBGC, in its capacity as statutory trustee, for plan proceeds, and against Kasperbauer, on a theory of breach of fiduciary duty. The Court made several determinations that impact our determination of whether the TAC can proceed. Specifically, the Court held:
1. The language of Ridley v. Cleveland Pneumatic Co., 924 F.2d 1310 (3d Cir. 1991), upon which we relied in dismissing the original complaint, was dicta. Burstein, 334 F.3d at 376.
2. Where a summary plan description (SPD) conflicts with the plan language, it is the SPD that controls the plaintiff's claim for benefits under the Plan. Id. at 378.
3. Since a plan beneficiary may state a claim for plan benefits based on a conflict between a summary plan description and a plan document, the claim for plan benefits was reinstated only as to the Plan itself, and the PBGC as statutory trustee of the Plan.Id. at 389.
4. In making a claim for plan benefits, a plan participant who seeks to claim those benefits on the basis of the conflict between the SPD and the Plan need not plead reliance on the SPD.Id. at 380.
5. The PBGC's statutory obligation to guarantee certain benefits does not apply to benefits that have become non-forfeitable (i.e. vested) solely on account of the termination of the plan. Id. at 382.
6. Thus, the PBGC, in its role as statutory guarantor, is not responsible for guaranteeing or insuring plan benefits that vest solely as a result of a plan termination. Id. at 383.
7. To state a claim against Kasperbauer for breach of fiduciary duty, the TAC must allege that the defendant is a fiduciary of the plan, a misrepresentation by the defendant fiduciary, the materiality of that misrepresentation, and detrimental reliance by the plaintiff class. Id. at 384. The current motions test whether plaintiffs have adequately pled their claim against PBGC as statutory trustee and have adequately pled the reliance element of their claim against Kasperbauer.
The PBGC.
PBGC argues that Counts II and III of the TAC continue to allege claims for benefits that vested only upon the Plan's partial termination, and thus are barred. It cites both this court's opinion and the Third Circuit opinion holding that the PBGC, "in its guaranty role, is not responsible for guaranteeing or insuring plan benefits that become vested solely as a result of a plan termination." Motion of PBGC at 6. It adds that there can be no liability in its statutory trustee role because there are insufficient plan assets to pay non-guaranteed benefits.
Count II of the TAC asserts a claim against the Plan for benefits, alleging that when "AHERF partially terminated the Plan, plaintiffs became eligible to vest in 100% of their accrued benefits, measured by the contributions AHERF had made to their accounts," along with accrued interest. TAC, ¶ 114 (emphasis added). Count III asserts a nearly identical claim against PBGC, "as the statutory trustee of the Plan." TAC, ¶ 119. Examining this language in light of the Third Circuit opinion, it is clear that the plaintiffs cannot state a claim against PBGC for benefits in which plaintiff became vested solely as a result of the plan termination. PBGC has no obligation to guarantee or insure benefits that vested solely as a result of the termination. Nonetheless, plaintiffs can state a claim for plan benefits that otherwise accrued. The question remains, can the TAC be construed to state a claim for benefits earned in some manner other than upon the termination of the plan? We believe that it can.
The crux of the remaining viable claim, as envisioned by the Third Circuit in its remand order, and notwithstanding the language of ¶ 114, is that the SPD informed participants — or at least created an impression — that each of them had an individual, fully funded account in which benefits were accrued. TAC ¶ 56. It advised them that "annual retirement credits" were " earn[ed]" and that the account would "also earn interest credits." TAC ¶ 57. The discrepancy between the SPD and the plan was the basis for the Third Circuit's granting to the plaintiffs the opportunity to file the TAC. We read the Third Circuit's insistence that there is no reliance element in a claim for plan benefits under ERISA, see Burstein at 381 (plan benefits under ERISA § 502(a)1) (B) are contractual in nature and is, in essence, the assertion of a contractual right), to mean that the use of the term "earned" created a contractual right to the hypothetical bookkeeping entries, irrespective of the participant's being vested in the account. Thus, plaintiffs have pled a claim against the Plan, and PBGC as statutory trustee, for non-guaranteed plan assets.
This is, however, is a pyrrhic victory; it is undisputed that there are no plan assets from which these non-vested benefits could be paid. As the PBGC makes clear, non-guaranteed assets are last in line to be paid under the statutory allocation scheme governing the termination of a plan. See 29 U.S.C. § 1344(a). The TAC itself alleges that the plan was terminated as of August 25, 1999, because it was underfunded and could not meet its obligations. TAC ¶ 97. As there are no plan assets to pay claims, the PBGC has no liability in its capacity as statutory trustee. As it also has no liability in its capacity as guarantor, the PBGC's motion to dismiss will be granted. Kasperbauer.
We note that plaintiffs argue the lack of plan assets to fund their claims is an affirmative defense to their claim. We disagree. The Plan and the PBGC are not merely "judgment proof" tortfeasors; their liabilities are statutorily limited to the plan assets, whose distribution is statutorily prioritized. Once the claims with higher priority exhaust the fund, the Plan and PBGC as statutory trustee have no further liability. The Third Circuit clearly recognized this eventuality when it noted that
To the extent that the PBGC took the place of the Plan administrator, Burstein, if he was to prove that benefits are due him under the language of the SPD, could seek to enforce his claim for benefits against the Plan, with PBGC as its administrator. In such a case PBGC, as Plan administrator, would allocate funds from Plan assets pursuant to the asset allocation priorities contained in 29 U.S.C. § 1344.Burstein, 334 F.3d at 382 n. 23. There is no factual dispute that the Plan is insolvent; the legal conclusion arising from that fact is that the plaintiffs' claim against the Plan is futile.
Turning to the motion of Kasperbauer, we find the TAC adequately alleges the detrimental reliance element of breach of fiduciary duty, as required by the Third Circuit. We previously determined that the first three elements of breach of fiduciary duty had been met. We concluded, however, that the detrimental reliance element resulting from the alleged misrepresentation was lacking because plaintiffs only alleged an expectation that benefits would materialize. Burstein at 386. The Third Circuit, agreeing with our conclusion that detrimental reliance was an element of the tort claim, and that a mere expectation was insufficient, determined to give plaintiffs another opportunity to plead it based on counsel's representation at oral argument that plaintiff could do so. Id. at 387-89.
The TAC makes separate allegations for each named plaintiff. Burstein, Hing Fay and Haas assert that the SPD created an impression that accounts existed and would be available to them upon vesting. Each of these plaintiffs assert that had they known the truth, they would have allocated more money to other retirement vehicles. TAC ¶¶ 73-75. Austin and Crespo make the same assertion, adding that the Plan was an important part of their decisions to accept employment with AHERF. TAC ¶¶ 76-77. Kasperbauer argues that the allegation that each "would have allocated more money to other retirement vehicles" is insufficient to meet the detrimental reliance element because it fails to allege that the plaintiffs are in a worse position than they would have been if they had in fact made such an allocation. This argument is not well grounded. The notice pleading standard used in the federal courts requires only that plaintiffs inform defendants of the nature of their claims, and not, for example, the scope of their alleged losses. Plaintiffs have adequately pled that the alleged misrepresentation caused them to act or fail to act (make alternate retirement allocations or seek alternate employment) to their detriment. It is for the discovery process to reveal, and a summary judgment motion to test, whether plaintiffs are able to come forward with evidence to establish they have relied to their detriment upon the SPD and Kasperbauer's representation.
We also find no merit to Kasperbauer's argument that the breach of fiduciary duty claim seeks relief that is not available under ERISA. He bases his argument on ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), which provides that a civil action may be brought "by a participant, beneficiary, or fiduciary" to enjoin any act violative of ERISA or to obtain other appropriate equitable relief. As plaintiffs seek money damages, Kasperbauer argues their claim is not cognizable. This argument has at least three problems: (1) plaintiffs do not rely on § (a)(3) in the TAC; (2) § (a)(3) governs suits by a fiduciary, not against one; and (3) it ignores the provisions of § (a)(1) which permit an action by a participant or beneficiary "to recover benefits due to him under the terms of his plan." The plaintiffs' claim for breach of fiduciary duty is clearly brought to recover benefits they believe they were due under the Plan.
Kasperbauer's alternate argument is also problematic. He asserts that the liability of fiduciaries is governed by § 409 of ERISA, 29 U.S.C. § 1109, which provides that:
Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate. . . .
(emphasis added). Kasperbauer argues this section makes clear that liability for breach of fiduciary duty accrues only to the plan itself, not to participants suing in their individual capacities, citing Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 140 (1985) (§ 409 liability accrues only to the plan itself, § 502(a)(2) in effect allows individual participants to sue in a representative capacity on behalf of the plan as a whole) and Hozier v. Midwest Fasteners, Inc., 908 F.2d 1155, 1162 n. 7 (3d Cir. 1990). Following Hozier, however, the Third Circuit has clarified that a direct action by an ERISA plan participant or beneficiary for breach of fiduciary duty is permitted under § 502(a)(3)(B), 29 U.S.C. § 1132(a)(3)(B).Bixler v. Central Pa. Teamsters Health-Welfare Fund, 12 F.3d 1292, 1298-99 (3d Cir. 1993).
Accordingly, we deny Kasperbauer's motion, with leave to renew his arguments in a motion for summary judgment at the close of discovery.
Class Certification.
The class that the representatives seek to have certified consists of
All former employees of Allegheny Health Education and Research Foundation ("AHERF") who were participants in the Retirement Account Plan for Employees of Allegheny Health Education and Research Foundation (the "Plan") at any time prior to November 10, 1998, and who at the time of the Plan's partial termination on November 10, 1998, had less than five years of credited service (as defined by the Plan). Excluded from the class are defendants and each of their legal representatives, heirs, successors and assigns.
Plaintiffs Burstein, Austin, Haas, Hing Fay and Crespo seek appointment as class representatives. They argue that the numerosity, commonality, typicality and adequacy requirements of Rule 23(a), and at least one Rule 23(b) requirement have been met.
Regarding numerosity, "[n]o minimum number of plaintiffs is required to maintain a suit as a class action, but generally if the named plaintiff demonstrates that the potential number of plaintiffs exceeds 40, the first prong of Rule 23(a) has been met. Stewart v. Abraham, 275 F.3d 220, 227 (3d Cir. 2001). Plaintiffs allege the proposed class exceeds 4,250 members. Thus, we find numerosity has been established.
The commonality requirement will be satisfied if the named plaintiffs share at least one question of fact or law with the grievance of the purported class. Id. at 227; Baby Neal v. Casey, 43 F.3d 48, 56 (3d Cir. 1994). Plaintiffs assert there are several questions of law and fact common to the class, including whether Kasperbauer properly disclosed the terms of the plan and/or misrepresented the terms of the plan. We find the commonality requirement has been established.
The typicality requirement "centers on whether the interests of the named plaintiffs align with the interests of the absent members." Stewart at 227. Cases challenging the same unlawful conduct which affects both the named plaintiffs and the putative class usually satisfy the typicality requirement irrespective of varying fact patterns underlying individual claims. Baby Neal at 58. Plaintiffs assert the same conduct — Kasperbauer's alleged misrepresentations — serves as the basis for the individual and class claims. We find the typicality requirement has been met.
The adequacy requirement requires that no conflict exist between he named plaintiffs and the class members, and that class counsel are qualified to conduct the class litigation. In re Ikon Office Solutions, Inc. Securities Litigation, 191 F.R.D. 457, 466 (E.D.Pa. 2000). We find there is an identity of interests between the class and the representatives and that counsel has the ability to adequately represent the class.
Given the post-pleading posture of the case, which will be focused solely upon the breach of fiduciary duty claim and the plaintiffs' detrimental reliance on Kasperbauer's alleged misrepresentation, satisfying Rule 23(b) is a much closer question. Rule 23(b) requires plaintiffs to establish either (1) the risk that separate actions create incompatible standards of conduct of the defendant, or that adjudications regarding individual members be dispositive of the interests of the class as a whole; (2) the defendant has, for the purpose of injunctive or declaratory relief, acted in a manner generally applicable to the class; or (3) common questions of law or fact predominate over questions affecting individual members. Given the emphasis of the remaining claim for money damages, plaintiffs are hard pressed to meet their burden of demonstrating Rule 23(b)(2). Thus, the plaintiff must demonstrate either 23(b)(1) or (3), i.e., that an adjudication of the representatives plaintiffs' reliance on the alleged misrepresentations would be dispositive, or that questions common to the members of the class predominate over questions affecting only individual members.
As the Third Circuit made clear in Burstein, detrimental reliance is an element of the breach of fiduciary duty cause of action which plaintiffs must prove. While we found the commonality requirement of Rule 23(a) was satisfied, we harbor serious doubts that common questions of law and fact predominate over individual questions, specifically regarding what information each member of class was exposed to prior to making their employment decisions, and upon what each relied in making their decisions.
The class certification record discloses, for example, that Plaintiff Crespo never received the SPD. Plaintiffs Burstein, Haas and Hing Fay could not remember if they received or ever read the SPD. Hing Fay could not recall if she ever read the Plan Brochure, while Crespo said he did. There is also marked differentiation in the testimony regarding whether each plaintiff received information from Kasperbauer. Crespo testified he learned he might vest in the event of a partial termination from other AHERF employees. Hing Fay testified she was told by either Haas or another employee in her office. Burstein cited several sources for his learning he might vest upon partial termination, including discussion at meetings held when AHERF entered bankruptcy, from representatives of Tenet Health Care, from a person appointed by the bankruptcy court to represent AHERF, and a lawyer representing one of the other doctors. He could not recall any AHERF person, let alone Kasperbauer, making this representation.
It is clear from the record that the representative plaintiffs received information from sources other than Kasperbauer upon which they may have detrimentally relied. We find, based on the record presented, issues common to the class do not predominate over the factual and legal issues of reliance affecting each individual member of the purported class. For this same reason, the factual differentiation between the sources of the purported members' reliance discounts the possibility that adjudication of the representatives plaintiffs' reliance would be dispositive.
As it is clear that proving the detrimental reliance element will involve factual disparities among the putative class members and thus present issues that preclude litigation as a class, we deny the motion for class certification.
ORDER
The motion of Pension Benefit Guarantee Corporation to dismiss the Third Amended Complaint (#145) is GRANTED. The Third Amended Complaint is dismissed as to Pension Benefit Guarantee Corporation.The motion of Dwight P. Kasperbauer to dismiss the Third Amended Complaint (#153) is DENIED.
The motion of plaintiffs for class certification DENIED.
IT IS SO ORDERED.